Retail landlords holding the bag

Circuit City went bankrupt in November, and the company said this month that it plans to close its remaining 567 stores nationwide. A typical Circuit City store occupies about 30,000 square feet. (Eduardo Contreras / Union-Tribune)

Circuit City went bankrupt in November, and the company said this month that it plans to close its remaining 567 stores nationwide. A typical Circuit City store occupies about 30,000 square feet. (Eduardo Contreras / Union-Tribune)

The collapse of retail chains such as Linens 'N Things, Circuit City and Mervyns has put more than 1 million square feet of retail space back onto the market. (Howard Lipin / Union-Tribune)

Times are tough for retailers, as the failures of Circuit City, Mervyns and Linens 'N Things attest. And that pain is translating into headaches for their landlords.

Owners of shopping centers are expected to see a jump in vacancies and declining revenue as even more stores shut down after a dismal holiday shopping season.

Holiday sales can amount to as much as 40 percent of annual revenue for retailers, and sales fell 2.8 percent this past season.

For those retailers still in business, many are seeing revenue shrink as financially strapped consumers spend less. So now some are trying to renegotiate rents with landlords to cut costs.

That puts pressure on landlords who already may have seen substantial revenue reductions from the loss of other tenants such as Circuit City, which went bankrupt in November. The company said this month it would close its remaining 567 stores nationwide.

In San Diego County, the collapse of Circuit City, Mervyns and Linens 'N Things put roughly 1 million square feet of retail buildings on the market. The three chains had a total of 25 stores in the county.

Yet despite the store closures, the news isn't all bad for the owners of San Diego retail centers. The ones in the best locations are attracting the attention of the handful of retailers still in expansion mode.

“We don't have a lot of big boxes that become available,” said Reg Kobzi, a senior vice president with CB Richard Ellis. “Even in this economic climate, there are tenants willing to backfill those if they're in great locations.”

Department store chain Kohl's, for example, recently assumed the leases of three former Mervyns stores in San Diego County – one in the College Grove Shopping Center, another in Mira Mesa and a third at an undisclosed location, according to bankruptcy court records.

In addition, the former Linens 'N Things building in Carmel Mountain Ranch reportedly has offers from three or four prospective tenants for the roughly 70,000-square-foot structure, according to brokers.

A Circuit City store soon will be available in the same shopping center, and a Mervyns is available next door.

“There are retailers still out there looking,” said John Still, a senior vice president with Flocke & Avoyer Commercial Real Estate. “Specific to Carmel Mountain Ranch, there are some grocery users who have never been able to get in there because there was nothing available.”

While some retailers are looking to add stores, the number is about one third to a quarter the size it was at this time last year, said Mike Clark, a retail broker at Grubb & Ellis/BRE Commercial.

Larger shopping centers in established neighborhoods are likely to be the first to attract these companies. Centers in areas with a lot of foreclosures or delayed subdivision developments could find it harder to lure tenants.

“In times like these, you get back to the fundamentals of real estate, which is location, location, location,” Clark said. “The retailers are smelling blood in the water. They're taking advantage of that.”